Credit bubble burst Irwin's long success

For years Irwin Financial Corp.'s big bet on mortgages out West paid off for shareholders.

Second-generation chief executive William I. Miller used his Stanford University MBA to produce a sparkling 20 percent return on equity and a stock price that zoomed to $36 a share during a long run.

While the Columbus-based bank-holding company wasn't a big player in Central Indiana, Irwin Financial was well-known in Phoenix, Las Vegas and Sacramento, Calif. Making big loans in those places fueled the stellar financials -- until the bubble burst.

Now Will Miller's scrambling to save the company, and the events of the past two weeks made an already-tough job even tougher.

Eleven years after Irwin Financial's party began, it abruptly ended. The housing bubble burst and the loan portfolio that propelled earnings for a decade popped with it. By mid-July the stock price lagged to $2.25 and Miller announced a series of moves intended to clean up the company's balance sheet.

Then Miller started telling people what the company was doing. Irwin Financial invited shareholders to several meetings. The heir to the Cummins fortune, who has a 38 percent stake in Irwin Financial, didn't sugarcoat the problems, according to people who attended.

"Will said, 'When the environment changes, your strategy must change,' " said Brooke Tuttle, a shareholder and longtime business leader in Columbus. "There is optimism that Irwin will come through this, but it will be a different company."

Different means dumping much of the Western states' portfolio. As the Star reported Oct. 2, the aggressive moves included selling $1 billion of home equity loans for a song just to move them off the balance sheet. But the deal with New York-based Roosevelt Management Co. failed as the credit markets froze.

Now Irwin Financial has to raise money to meet federal capital requirements, and it's left with one option -- selling stock at precisely the worst possible time. The company's already battered stock price means it will have to sell about 14 million shares, just under half the total currently in shareholders' hands.

That will raise about $50 million to plug the hole in its balance sheet. But it comes at an extreme price to shareholders, who will see the value of their stock fall.

For what it's worth, Miller feels that pain, too. He controls 11.3 million shares between what he owns directly and two family trusts he oversees. The stake that was worth more than $400 million at the peak now is worth about $35 million.

While Columbus frets about its hometown bank's future, it's interesting to imagine what might have happened had Irwin decided to follow a different path. Like the one that First Merchants Corp. in Muncie followed. First Merchants swallowed up a lot of nearby competitors while Irwin Financial did deals in the desert.

Now First Merchants is knocking on the lucrative Indianapolis market from a position of strength. Given its position between Indianapolis and Louisville, it's hard not to think what could have been for Irwin if it had stayed home -- especially since that's the new strategy.

ADVERTISEMENT

ADVERTISEMENT

ADVERTISEMENT

Email this article

Credit bubble burst Irwin's long success

For years Irwin Financial Corp.'s big bet on mortgages out West paid off for shareholders. Second-generation chief executive William I. Miller used his Stanford University MBA to produce a sparkling